Expert answer:James Confectioners Case Study

Answer & Explanation:Read Case Study 7 – James Confectioners – Part 2, page 819, and answer the three questions at the end of the case study.Summarize all of your answers in one Word document.(please provide good quality and original response. Thank you!)Case 7 James Confectionersu2014Part 2.docx
case_7__james_confectioners___part_2.docx

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Case 7
James Confectioners—Part 2
How can a small confectioner forecast cash flow?
Telford James and his wife Ivey, the second-generation owners of James
Confectioners, a family-owned manufacturer of premium chocolates that was started
by Telford’s father, Frank, in 1964 in Eau Claire, Wisconsin, have become
increasingly concerned that turmoil in the banking and financial industries could have
a negative impact on their business. They have read the headlines about bank
closures, heightened government scrutiny of the banking industry, and tight credit
conditions, especially for small businesses. The company has a $150,000 line of
credit with Maple Leaf Bank, but the Jameses want to increase it to $250,000 as a
precautionary move. Last week, they contacted Claudia Fernandes, their personal
banker at Maple Leaf, about increasing their line of credit. Fernandes said that in
addition to reviewing the James Confectioners’ most recent balance sheet and income
statement, she would need a cash flow forecast for the upcoming year.
Although Telford and Ivey have prepared budgets for James Confectioners and have
analyzed their financial statements using ratio analysis, they have not created a cash
flow forecast before. They expect sales to increase 6.2 percent next year to
$4,139,213. Credit sales account for 96 percent of total sales, and the company’s
collection pattern for credit sales is 8 percent in the same month in which the sale is
generated, 54 percent in the first month after the sale is generated, and 34 percent in
the second month after the sale is generated. The Jameses have gathered the following
estimates from their budget for the upcoming year:
The company’s cash balance as of January 1 is $22,565. The interest rate on James
Confectioners’ current line of credit is 8.25 percent.
Questions
1.
year.
Develop a monthly cash budget for James Confectioners for the upcoming
2.
What recommendations can you offer Telford and Ivey James to improve
their company’s cash flow?
3.
If you were Claudia Fernandes, the James’s banker, would you be willing
to increase the company’s line of credit? Explain.
(Scarborough 819-820)
Scarborough, Norman M. Effective Small Business Management VitalSource eBook For
DeVry University, 10th Edition. Pearson Learning Solutions. VitalBook file.
…
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